Emerging Markets Preview for the Week Ahead

(from my colleagues Dr. Win Thin and Ilan Solot)Between all the excitement of last week's central bank meetings and US data, many EM currencies have reverted back to high beta status towards majors. All in all, EM FX fared relatively well last week, considering the dollar posted broad-based gains. Meanwhile, many EM equity indices have outperformed.This should be a relatively quiet week with several Asian countries starting off on holiday. Much of the excitement is still focused on Brazil, as the corruption scandal surrounding Petrobras adds a new twist to the presidential race. We continue to think that the stronger EM credits will fare well in the current global environment.Czech Republic reports August CPI Tuesday, expected to remain steady at 0.5% y/y. It reports Q2 current account later that day too. Low inflation should allow the central bank to maintain loose policy well into 2015, as policymakers remain concerned about growing headwinds to growth.Taiwan reports August trade Tuesday, with exports expected to rise 4.5% y/y and imports to rise 9.4% y/y. August trade data out of China, Korea, and Brazil were largely on the weak side, and so the risk here is to the downside as well. Recent softness in mainland China data is also a concern for Taiwan.South Africa reports Q2 current account data Tuesday, expected at -5.5% of GDP vs. -4.5% in Q1. It then reports July manufacturing production on Thursday, expected at -5.8% y/y vs. +0.5% in June. If the external accounts continue to worsen, the fundamental mix will remain poor when one considers that weak growth and high inflation continues.Brazil reports the first preview of September IGP-M wholesale inflation Tuesday. On Thursday, COPOM releases minutes to its September meeting and Brazil reports July retail sales. Wholesale and PPI inflation has turned lower, but consumer inflation measures remain stubbornly high. For investors, the economy is likely to continue taking a back seat to politics, which are heating up.Mexico reports August CPI Tuesday, expected to rise 4.09% y/y vs. 4.07% in July. It also reports August ANTAD retail sales that day. On Thursday, it reports July IP. We believe the economic outlook will continue to improve, dragged higher by the US. As such, we see no further need to cut rates.Turkey reports Q2 GDP Wednesday, expected to rise 2.8% y/y vs. 4.3% in Q1. It then reports July current account data on Thursday, expected at -$2.75 bln vs. -$4.1 bln in June. The external accounts have improved dramatically, though mostly from the import side as slow growth has hurt consumption.Hungary central bank releases minutes on Wednesday from its August meeting, when rates were kept steady for the first time in two years. It then reports August CPI on Thursday, expected to rise 0.2% y/y vs. 0.1% in July. Inflation remains low, and should allow the central bank to keep rates steady well into 2015.China reports August CPI and PPI Thursday, with the former expected at 2.2% y/y and the latter at -1.1% y/y. Over the weekend, China will report August retail sales and IP, with both series expected to show a modest slowing. The economic outlook remains soft, which has been reflected in the continued drop in iron ore prices to multi-year lows from 2009. August trade data showed imports -2.4% y/y, much weaker than expected.Indonesian central bank meets Thursday and is expected to keep rates steady at 7.5%. Inflation fell to 4% y/y in August, the lowest since February 2013 and back in the 3.5-5.5% target range, we see steady policy. However, we see a hawkish bias being maintained ahead of expected cuts to fuel subsidies by the new incoming administration.Philippine central bank meets Thursday and is expected to hike rates 25 bp to 4.0%. Inflation remains high at 4.9% y/y in both July and August, and could pierce the 3-5% target range in the coming months. As such, further tightening seems likely. Indeed, the target range will fall to 2-4% in 2015.Chilean central bank meets Thursday and is expected to cut rates 25 bp to 3.25%. If so, this would be the third straight month of easing after a three month pause despite elevated inflation. However, we think steady rates are possible after August CPI came in higher than expected at 4.5% y/y. The real sector data was weak in Q2, but may have stabilized in Q3. Peru central bank meets Thursday and the market is split. Of the 8 analysts polled by Bloomberg, 4 expect steady rates at 3.75% and 4 expect a 25 bp cut to 3.5%. With inflation back in the 1-3% target range in August (at 2.68% y/y), we think there is greater potential for a cut rather than no cut. Either way, the easing cycle will likely continue in Q4, albeit at a measured pace.Korean central bank meets Friday and is expected to keep rates steady at 2.25%. BOK has signaled that it views the August cut of 25 bp as a "one and done" move. We agree….for now. If the weak yen and slowing regional growth continues, the headwinds may be too great for the BOK to ignore.Russian central bank meets Friday and is expected to keep rates steady at 8.0%. Here too, the market is somewhat split. Of the 19 analysts polled by Bloomberg, 13 expect steady rates at 8% and 6 expect a 50 bp hike to 8.5%. The impact of sanctions (and potentially new sanctions) is still being felt and this continues to make the central bank's job difficult. It has hiked rates three times this year for a total of 250 bp, and a stabilizing situation in Ukraine could allow the bank to stand pat for now. India reports August CPI and July IP Friday. CPI is seen at 7.8% y/y after ticking higher in July to 7.96% y/y, while IP seen up 2% y/y vs. 3.4% in June. For now, we see the RBI on hold as it waits to see the full effects of the monsoon season on the economy. Since June 1, the monsoon has been 13% below "normal," and will likely push up inflation and push down GDP growth. Colombia central bank minutes will be released Friday. At that August meeting, the bank hiked rates 25 bp to 4.5%, and was the fifth straight month of tightening. With inflation stabilizing just below the 3% target, we think the tightening cycle is nearing an end and the minutes may reflect this.